Stablecoins have always been the main content in the history of blockchain. It provides a decentralized means of currency stability, and users provide the ability to trade tokens. Stablecoins have accelerated their popularity in the past few years and have gradually become the main content of the crypto world and the traditional financial world. As the discussion on stablecoins continue to grow, will 2023 become the first year of stablecoins?
Inflation Is Soaring, and Cryptocurrencies Are Growing Savagely in Latin America
The collapse of UST in May 2022 has deeply stimulated people’s nerves. Why are the stablecoins, which play a vital role in crypto transactions, so fragile? The regulatory news of “the boy who cried wolf” spread in the media reports of various countries around the world and legislators and regulators from the United States to Europe to Asia are increasingly cautious about cryptocurrencies. However, these circumstances do not seem to hinder the choice of users in some countries. In their view, a stablecoin is their better choice than fiat currency.
The World Bank stated last year that the inflation rate in Latin America is expected to reach 14.6% in 2022. Although it may fall to 9.5% in 2023, it is still at a high level. Most Latin American countries, including Venezuela and Argentina, have been affected by high inflation for a long time, resulting in fluctuations and weakness of local currencies, so people in these regions choose to store their assets in gold and dollars.
But in recent years, people are more willing to use cryptocurrency as a means of storing assets. According to a survey report by Mastercard in 2022, more than 50% of Latin Americans have conducted cryptocurrency transactions at least once, and more than one-third of Latin Americans stated that they use stablecoins for shopping every day.
The uniqueness of Latin America lies in its weak economic system and its heavy dependence on cross-border remittances. Latinos usually migrate to other countries to work and send money back through regular cross-border remittances.
According to the report released by the World Bank, the remittances to Latin America and the Caribbean in 2022 reached $142 billion, and the remittance income of El Salvador, Honduras, Jamaica, and Haiti accounted for more than 20% of GDP. The price paid by Latin Americans for using remittance services so frequently is that they need to pay an average of 5% for each transaction, which has led to the preference of Latin America for cryptocurrency.
According to The Block analysis, China’s active opening-up movement will attract foreign direct investment (FDI) to flow out of Latin America in 2023. As the demand for Latin American currencies decreases, inflation in the region may soar to a higher level. When this situation is combined with the fact that many Latin Americans do not trust their local banking system, their access to financial services is more broken than ever.
Whether to Develop Stablecoin or Central Digital Currency Is A Question
The central digital currency provides a nationalized and stable form of digital currency for the country. The central digital currency is usually linked to the local fiat currency, trying to provide a digital currency operated by the government or the central bank, which can be distributed throughout the country to promote commerce and transactions between individuals and enterprises. In essence, the digital central currency is also legal tender and is used as a means to supplement physical fiat currency.
As a transaction medium, money represents the user’s trust in the nature of money. For the central digital currency, the user trusts its issuing government; For stablecoins, users trust the value of its anchoring currency or its rigorous algorithm.
From the perspective of credit endorsement, it depends on which currency users tend to trust; From the perspective of the issuing entity, stablecoins are operated by its issuing company, while the central digital currency is operated by the national central bank. If it is a sovereign country with good economic fundamentals, the operation specification and risk level are better than the issuing institution.
However, in some backward third-world countries, such as those in Latin America mentioned above, the stablecoins are much better than the central digital currency; From the perspective of investment, stablecoins have certain investment attributes, and their market value and price may plummet with investors’ panic selling (we have seen this many times in the history of cryptocurrency in the past).
The central digital currency has national support, which can avoid the impact of market turbulence to a certain extent.
However, because the application scope of digital currency of central banks is mostly limited to their own countries at present, the most important thing that stablecoins are superior to central digital currency is that they can naturally realize cross-border payment transactions worldwide and reduce the cost and risk of payment and settlement.
Perhaps what is worth looking forward to is a global stablecoin. As Vitalik Buterin, the founder of Ethereum, said in an interview in December 2022, it will be revolutionary for the industry to create a stablecoin that can resist hyperinflation and can withstand all types of conditions (including the chain and broader macroeconomics).
“If you can create a stablecoin, it can survive under any circumstances, including the hyperinflation of the dollar… If you can create something that makes everyone who experiences this situation feel like a lifeline, it is also a huge opportunity.” – Vitalik Buterin
The Struggle Between “Digital Dollars” and “New Weapons”
Tether（USDT）
Tether (USDT) was launched by Tether Limited in 2014. Its reserve assets consist of US treasury bills, commercial paper, money market funds, and cash dollars. It is the largest stablecoin with the largest trading volume and market value in the world. As of February 7, the market value of USDT exceeded $68 billion.
USD Coin（USDC）
USD Coin (USDC), launched by Circle Inc in 2018, is the second stablecoin in the world in terms of trading volume and market value. As of February 7, the market value of USDC was nearly $42 billion.
In June 2022, USDC approached USDT for the first time since its establishment, with a market value of more than $58 billion.
The price fluctuation was relatively unstable at the beginning of the issuance of the USDT. The ratio of the USDT to the US Dollar was up to 1:1.32 and down to 1:0.57, with a maximum increase and decrease of nearly 75%, and then gradually stabilized at 1.
USDT took advantage of the first-mover advantage and dominated the market for a long time. Until it fell below 50% in November 2021, the recession was difficult to reverse. In 2022, the decline was further expanded, and the market value fell from $78.4 billion to $66.2 billion.
Since the issuance of the USDC, the price has fluctuated slightly, with the highest ratio of 1:1.17 to the dollar and the lowest ratio of 0.89, and the fluctuation range is below 15%. Arcane Research has predicted that in October 2022, USDC will replace USDT as the largest stablecoin.
In 2022, USDC did live up to expectations. Its market value increased from $42.2 billion to $55 billion, and its market share increased to 36.3%, approaching 43.8% of USDT. Even in the UST crash, the USDC was hardly affected and the price soared to $1.02.
Unfortunately, USDC stagnated after the second half of last year. In September, the market value of USDC fell by 5.5%, while the market value of USDT resumed increasing by 1%. In addition, in order to add liquidity to BUSD and remove the smaller stablecoins and USDC of the exchange, the vision of replacing USDT seems increasingly remote.
As of the time of writing (February 7), USDT’s market share was 50.7%, USDC’s market share was 30.7%, and BUSD’s market share was 12.1%, which investors can check from the Gate.io Crypto Prices.
The dispute over which of the two stablecoin giants is better or worse continues. The reserve cloud that plagues USDT cannot be solved. It seems that Tether‘s motto is not to provide clear self-certification information and proof.
Last week, the Wall Street Journal revealed that by 2018, 86% of Tether‘s shares were controlled by four people: one of the founders was a child star, and later became an early cryptocurrency investor; Another founder and major shareholder engaged in plastic surgery and beauty industry before turning to electronic products import and cryptocurrency; A new boss went deep into British politics. This dramatic leadership structure has to make people feel the richness of the crypto industry.
In January this year, Circle announced that it would cooperate with Deloitte, one of the four major international accounting firms, to audit its reserve certificate, which has the momentum to transform into global stablecoins.
More media even compared the USDC to “a new weapon for the United States to penetrate other countries”. In terms of transparency and regulation, USDC and USDT are heading for different paths, and the first year of stablecoins may be ushered in in the competition between them.
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